Small and medium sized enterprises (SMEs) will be irreparably damaged by the imminent AIFM directive, venture capital experts from across the globe have warned. This was the main message to come out of the Global Venture Capital Congress last week, which saw representatives from the major venture capital associations come together in New York.

The Directive, which aims to reduce risk at large trading institutions, will restrict venture capital firms and in turn will have a negative impact on the SMEs that rely on their investment, warned the groups.

For example, rules such as the requirement to disclose highly sensitive portfolio company information by European venture investors will likely result in a mass exodus of venture capital firms investing in European companies and raising money from European investors.

Other rules involve significant restrictions on non-EU investors doing business in Europe.

“Superimposing rules intended for large trading institutions on small venture capital firms would directly impact support for SMEs and other innovative companies in Europe and around the world,” said Dr. Katherine Woodthorpe, chief executive of the Australian Venture Capital Association. “Such regulation would effectively negate all the past support the EU has given to this important ecosystem.”

The leaders called on the regulators to amend the directive, which is due to be voted on in the coming month, before it is implemented in order to avoid serious damage to the private equity market and in the long-run, the economy in general.

Uli Fricke, chairwoman of the European Private Equity and Venture Capital Association, warned that the unintended impact of the proposed AIFM Directive would be extremely damaging to venture capital and financing innovation across the world. “Venture capital relies on global fund sources in order to support local investment. Unwarranted restrictions on the free movement of capital would harm the financing of economic growth and innovation,” she added.
 

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